The correct answer is: E. No error.
The sentence is grammatically correct. The word “that” is used to introduce a direct quotation, and the word “prefers” is used to express a preference. The word “white” is an adjective that modifies the noun “shirt,” and the word “coloured” is an adjective that modifies the noun “one.” The word “on” is used to indicate a time or place, and the word “festival” is a noun that refers to a special event or celebration.
The sentence can be paraphrased as follows: Pramod said that he prefers a white shirt to a colored shirt on any festival occasion.